Remon Talks

At the end of the year many investors’ thoughts turn to how they can avoid paying tax. Note that avoiding tax is not the same as evading tax. Here are some tips for you!

Dividends

When you own mutual fund shares dividends are usually reinvested in the fund. Many investors make the mistake of paying capital gains tax on the difference of the buy price and the sell price. You can reduce your capital gain (or increase your capital loss) by deducting the dividends from the sale price as well.

Say you bought shares in some fund for $10,000, over the course of a few years the dividends were $1,000 and you decide to sell your stake in the fund for say $13,000. Many people would calculate their taxable gain as $13,000 - $10,000 = $3,000, however the correct calcultion would be $13,000 - $10,000 - $1,000 = $2,000. So instead of paying tax on $3,000 you pay tax on $2,000.

Write offs

Many investors forget to write off stuff they use for investing. Say you bought a laptop for $1,000, and 10% of the time you use the laptop it’s for investing purposes (checking, buying, selling, reading about investing etc.). You can now write off 10% of the laptop’s price, that’s another $100!

If you’re self employed and need to travel, you can also write off accommodations and meals, not to mention many other operating expenses. There may be a limit to writing of food or accommodations so check with your accountant to be sure.

Tax deferred accounts

The most well known tax deferred accounts are the individual retirement account (IRA) and the simplified employment pension (SEP). Making use of these accounts can save a lot of money in tax. You put money in these accounts without paying tax, and when you start to withdraw money from them, you are taxed at the rate of your income bracket.

If you wait to withdraw any money from the tax deferred accounts until you retire your income tax bracket will probably be lower then your current bracket, thus saving you money.

If you aren’t maxing out your IRA or SEP yet, start doing it already! It’s like free money!

Broker fees

When you buy or sell stocks or mutual funds, you pay a commission to the broker. When buying add the commission to the amount paid for a stock, and when selling substract the commission from the sale price of the stock. You can write off the broker fees, because they are expenses needed to help you grow your money.

Trackback URI | Comments RSS